Long Bonds Rise as Short Bonds Fall

It had to happen sooner or later, someone had to step in and buy U.S. Treasury debt. Though looking at the performance intra-day this was still a day where the yield rose vs. the open, it just opened weak after a near historic rise. The 10 year note put in the same kind of day but was stronger. Since crossing the 200 DMA to the upside last Thursday the yield on the 30 year bond has run into a wall at 3.50%, one would almost think that someone was manipulating this market which is one of the biggest in the world. Now who do you think could have access to enough cash to do something like that?

Today saw even compression of the yield curve as the 2 year and 5 year bonds rose while the 10 and the 30 fell. Short term inflation expectations after a brief, if violent dip, are beginning to rise again.

The 3 month OIS (Overnight Index Swap) yield has now risen to 0.16% after bottoming at 0.775% in mid-February. That doesn’t sound like much but it’s the highest it’s been in nearly 14 months. It has gone up in a straight line since the Greek bond swap results were coming in on March 2nd. At this point it looks like even in the face of unlimited swaps between central banks the interbank markets are starting to tighten up.

That rates are rising while the Fed is trying to hold rates down to stimulate credit expansion, which it is beginning to get should be alarming to anyone watching.

About Tom Luongo

Tom Luongo is a professional chemist and self-taught economist who has been following and trading stocks for nearly 12 years. He has no formal ties to the financial industry and considers that an asset in his analysis of the interplay between monetary policy and capital markets.